TFSA Dividend Stocks: How You Can Earn $400 Per Month of Growing Passive Income

Here’s how you can buy top Canadian dividend stocks in your TFSA to build a rapidly and consistently growing passive-income stream.

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When it comes to investing your hard-earned capital for the long haul, one of the best tools Canadians have at their disposal is the Tax-Free Savings Account (TFSA), especially if you’re looking to buy high-quality dividend stocks and build a significant passive-income stream.

Having the ability to invest in tonnes of different businesses across essentially all sectors of the economy and build a passive-income stream that you don’t have to pay taxes on is significant. Not to mention, when you don’t pay taxes on the income you’re earning, you can compound it at a much faster pace.

And with the total contribution room of TFSAs for those eligible since year one at $95,000 now, all your portfolio needs to generate is a yield of just 5.1%, and you’ll be bringing in upwards of $400 a month.

It’s essential to buy high-quality dividend stocks for your TFSA

When it comes to investing your hard-earned money for the long run and taking advantage of the power of compounding, two of the most important factors are the time you give your money to grow and the amount of money you have invested.

So, with that in mind, it’s essential that you ensure that the dividend stocks you buy for your TFSA are some of the best Canadian stocks on the market.

It’s far better to buy a reliable stock with a slightly smaller yield than a higher-risk dividend stock that offers a significant yield.

Avoiding high-risk stocks that could lose significant value is key since it will not only set you back when it comes to growing your capital, but you’ll also lose valuable contribution room in your TFSA.

So, if you’re looking to build a significant passive-income stream in your TFSA, it’s essential to buy high-quality and reliable dividend stocks.

Two reliable dividend stocks to hold for the long haul

If you’re looking for some of the best Canadian dividend stocks to buy and hold for years in your TFSA, Emera (TSX:EMA) is one of the best to keep your eye on.

Emera is a large-cap utility stock, one of the safest and most reliable businesses you can invest in. Not only are the services it provides essential and regulated by the government, but Emera’s operations are also well diversified, which also helps to mitigate risk.

Furthermore, utility stocks are not only reliable long-term investments but are widely known as some of the top dividend stocks, both for the yields they provide and the consistent dividend growth they offer.

For example, in just the last five years, Emera has increased its annual dividend by over 22%, showing why it’s an ideal stock to buy and hold for years in your portfolio. In addition, though, the stock is currently offering a yield of more than 6.1% today.

Another top stock to consider adding to your TFSA today is Choice Properties REIT (TSX:CHP.UN), the high-quality, predominantly retail real estate investment trust (REIT).

Just as utility stocks are some of the top investments to make for passive income, so too are REITs since they’re constantly generating significant cash flow each month.

And because 83% of Choice Properties’s tenants are reliable businesses (well-known grocery stores, banks, pharmacies, etc.), it’s one of the most reliable retail REITs that Canadian investors can buy.

Today, it offers a yield of roughly 5.1% and is currently trading off its 52-week high, making it one of the best investments to consider now.

The bottom line

The TFSA offers investors a significant opportunity to grow their capital rapidly without having to pay taxes on any of the gains. However, it’s essential to focus on buying high-quality businesses and investing for the long run.

Both of these dividend stocks above are high-quality, have the potential to grow their earnings and consequently dividend over the long haul, and have reliable, recession-resistant operations keeping the dividend safe.

Furthermore, each stock offers an attractive yield of more than 5%, which would make them top stocks to own in a TFSA.

So, if you’ve got cash you’re looking to put to work and want to start generating upwards of $400 of passive income every month, buying top Canadian dividend stocks is an ideal strategy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends Emera. The Motley Fool has a disclosure policy.

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